Pity the Billionaire.

Thomas Frank.

Images of small men usually arise and persist widely only because big men find good use for them.

-C. WRIGHT MILLS, White Collar.

Introduction: Signs and Wonders.

This book is a chronicle of a confused time, a period when Americans rose up against imaginary threats and rallied to economic theories they understood only in the gauziest terms. It is about a country where fears of a radical takeover became epidemic even though radicals themselves had long since ceased to play any role in the national life; a land where ideological nightmares conjured by TV entertainers came to seem more vivid and compelling than the contents of the news pages.

Seen from another perspective, this is a chronicle of a miraculous time, of another "Great Awakening," of a revival crusade preaching the old-time religion of the free market.1 It's the story of a gra.s.sroots rebellion and the incredible recovery of the conservative movement from the gloomy depths of defeat. Inevitably the words "populist" and "revolt" are applied to it, or the all-out phrase chosen by d.i.c.k Armey, the Washington magnifico who heads one of the main insurgent organizations: a "true bottom-up revolution."2 Let us confess that there is indeed something miraculous, something astonishing, about all this. Consider the barest facts: this is the fourth successful conservative uprising to happen in the last half century,* each one more a-puff with populist bl.u.s.ter than the last, each one standing slightly more rightward, and each one helping to compose a more spellbinding chapter in the historical epoch that I call "the Great Backlash," and that others call the "Age of Reagan" (the historian Sean Wilentz), the "Age of Greed" (the journalist Jeff Madrick), the "Conservative Ascendancy" (the journalist G.o.dfrey Hodgson), or the "Washington Consensus" (various economists).

Think about it this way. It has now been more than thirty years since the supply-side revolution conquered Washington, since laissez-faire became the dogma of the nation's ruling cla.s.s, shared by large numbers of Democrats as well as Republicans. We have lived through decades of deregulation, deunionization, privatization, and free-trade agreements; the neoliberal ideal has been projected into every corner of the nation's life. Universities try to put themselves on a market-based footing these days; so do hospitals, electric utilities, churches, and museums; so does the Post Office, the CIA, and the U.S. Army.

And now, after all this has been going on for decades, we have a people's uprising demanding that we bow down before the altar of the free market. And this only a short while after the high priests of that very cosmology led the world into the greatest economic catastrophe in memory. "Amazing" is right. "Unlikely" would also be right. "Preposterous" would be even righter.

In 2008, the country's financial system suffered an epic breakdown, largely the result-as nearly every credible observer agrees-of the decades-long effort to roll back bank supervision and encourage financial experimentation. The banks' stumble quickly plunged the nation and the world into the worst recession since the thirties. This was no ordinary business-cycle downturn. Millions of Americans, and a large number of their banks, became insolvent in a matter of weeks. Sixteen trillion dollars in household wealth was incinerated on the pyre Wall Street had kindled. And yet, as I write this, the most effective political response to these events is a campaign to roll back regulation, to strip government employees of the right to collectively bargain, and to clamp down on federal spending.

So let us give the rebels their due. Let us acknowledge that the conservative comeback of the last few years is indeed something unique in the history of American social movements: a ma.s.s conversion to free-market theory as a response to hard times. Before the present economic slump, I had never heard of a recession's victims developing a wholesale taste for neocla.s.sical economics or a spontaneous hostility to the works of Franklin Roosevelt. Before this recession, people who had been cheated by bankers almost never took that occasion to demand that bankers be freed from "red tape" and the scrutiny of the law. Before 2009, the man in the bread line did not ordinarily weep for the man lounging on his yacht.

The Consensus Speaks.

The achievement of the thing is even more remarkable when we remember the prevailing opinion climate of 2008. After the disasters of the George W. Bush presidency had culminated in the catastrophe on Wall Street, the leading lights of the Beltway consensus had deemed that the nation was traveling in a new direction. They had seen this movie before, and they knew how it was supposed to go. The plates were shifting. Conservatism's decades-long reign was at an end. An era of liberal ascendancy was at hand. This was the unambiguous mandate of history, as unmistakable as the gigantic crowds that gathered to hear Barack Obama speak as he traveled the campaign trail. You could no more defy this plotline than you could write checks on an empty bank account.

And so The Strange Death of Republican America, by the veteran journalist Sidney Blumenthal, appeared in April of 2008-even before the Wall Street crash-and announced that the "radical conservative" George W. Bush had made the GOP "into a minority party."3 In November, Sean Wilentz, the erstwhile historian of the "Age of Reagan," took to the pages of U.S. News & World Report to herald that age's "collapse." The conservative intellectual Francis f.u.kuyama had said pretty much the same thing in Newsweek the month before. That chronicler of the DC consensus, Politico, got specific and noted the demise of the word "deregulator," a proud Reagan-era term that had been mortally wounded by the collapse of (much-deregulated) Wall Street.4 The thinking behind all this was straight cause-and-effect stuff. The 2008 financial crisis had clearly discredited the conservative movement's signature free-market ideas; political scandal and incompetence in the Republican Party had rendered its moral posturing absurd; and conservatism's taste for strident rhetoric was supposedly repugnant to a new generation of postpartisan, postracial voters. Besides, there was the obvious historical a.n.a.logy that one encountered everywhere in 2008: we had just been through an uncanny replay of the financial disaster of 192931, and now, murmured the pundits, the automatic left turn of 1932 was at hand, with the part of Franklin Roosevelt played by the newly elected Barack Obama.

For the Republican Party, the pundit-approved script went as follows: it had to moderate itself or face a long period of irrelevance. And as it failed to take the prescribed steps, the wise men prepared to cluck it off the stage. When the radio talker Rush Limbaugh made headlines in early 2009 by wishing that the incoming President Obama would "fail," the former Bush speechwriter David Frum slapped him down in a much-discussed cover story for Newsweek. Judged by the standards of what would come later, of course, Limbaugh's wish sounds quaint, even civil; at the time, however, it seemed so shocking that Frum depicted such rhetoric as "kryptonite, weakening the GOP nationally." Venomous talk might entertain the party's bitter-enders, Frum acknowledged, but the price of going in that direction was the loss of the "educated and affluent," who increasingly found "that the GOP had become too extreme."

The GOP's strange drive toward self-destruction was a favorite pundit theme. When former vice president d.i.c.k Cheney announced that he preferred Limbaugh's way to the route of moderation, the New York Times columnist Charles Blow laughed that Cheney was "on a political suicide mission. And if his own party is collateral damage, so be it." When certain conservatives proposed a test to detect and punish heresy among Republican politicians, the Washington Post columnist Kathleen Parker called it a "suicide pact." The respected political forecaster Stu Rothenberg concluded in April 2009 that "the chance of Republicans winning control of either chamber in the 2010 midterm elections is zero. Not 'close to zero.' Not 'slight' or 'small.' Zero."5 Dustbin? No Thanks.

What the polite-thinking world expected from the leaders of the American Right was repentance. They a.s.sumed that conservative leaders would be humbled by the disasters that had befallen their champion, George W. Bush; that Republicans would confess their errors and make haste for the political center. The world expected contrition.

What it got was the opposite, delivered on the point of a bayonet. Instead of complying with the new speed limit, the strategists of the Right hit the gas. Instead of tacking for the center, they sailed hard to the right. Instead of seeking accommodation, they went on a quest for ideological purity. Instead of elevating their remaining centrists to positions of power, they purged them.

Now, the idea that the disasters of the Bush years spelled the end for conservatism was reasonable enough if you accepted a.s.sumptions that were thought to be obvious in those days: When a political group screwed up, people didn't vote for it any longer. When elected officials wandered too far into the fields of ideology, some mysterious force of political gravity always pulled them back to the "center." And so it was simple. The Right, under its beloved leader, George W. Bush, had disgraced itself; now it was the other team's turn at bat. Political epochs were supposed to run in thirty-year cycles or something, and the GOP's thirty years were up.

That Republicans might seek a way out of their predicament by turning their back on the center and peddling an even more concentrated version of their creed was not, by the conventional thinking of those innocent days, a viable option. And there were famous examples to tell us why, too. Back in 1983, to name the closest a.n.a.logy, the British Labour Party had reacted to the rise of Margaret Thatcher by convincing itself that what the public really wanted from it was a purified and even more left-wing alternative; the strategy fetched them a painful electoral thumping.

What all these formal, geometric calculations did not take into consideration were the contents of the politics themselves. Conservatives had been repudiated before, they had bounced back before, and they knew that voters don't judge an idea by placing it on some bell-curve chart and measuring the degree to which it deviates from the range of accepted Beltway opinion. Whether Republicans chose to move "left" or "right" was less important than how they addressed the economic catastrophes facing the nation. And their conservative wing had a coherent theory. Everywhere you looked, they declared, you saw a colossal struggle between average people and the "elites" who would strip away the people's freedoms. The huge bailouts that followed the financial crisis, they said, were evidence of a design on our savings by both government and Wall Street. Regulation, too, was merely a conspiracy of the big guys against the little. So while one side sat back and waited for the mystic tides of history to sort things out, conservatives acted. They reached deep into their own tradition and came up with a way to grab the opportunities that hard times presented.

Rather than acknowledge that they had enjoyed thirty years behind the wheel, they declared that they had never really got their turn in the first place. The true believers had never actually been in charge, the "Conservative Ascendancy" never really existed-and therefore, the disastrous events of recent years cast no discredit on conservative ideas themselves. The solution was not to reconsider conservative dogma; it was to double down, to work even more energetically for the laissez-faire utopia.

Pure idealism of this sort is unusual in American politics, however, and the jaded men of the commentariat sat back and waited for the system to punish the wayward ones, for the magnetic pull of the "center" to work its corrective magic. But this time the G.o.ds didn't intervene in the usual way. In 2010, a radicalized GOP scored its greatest victory in congressional elections in many decades.

Little Man, What Now?

The simplest explanation for the conservative comeback is that hard times cause people to lash out at whoever is in power. In 2010, that happened to be Democrats. Ergo, their rivals staged a comeback. But surely the two parties are not simply interchangeable, like c.o.ke and Pepsi. They are able to control their own fate to some degree, to differentiate themselves from each other. Besides, history provides enough examples of public sentiment moving consistently in a particular direction to show that it need not always flop aimlessly back and forth.

Another widely held view attributes the conservative resurgence to white racism, which is supposed to have been whipped into flames by the election of a black president. Indeed, one may point to some spectacular flare-ups of bigotry directed against the president and his party. But individual prejudice and a handful of name-calling incidents should not be enough to indict an entire movement, no matter how repugnant we find that prejudice and those names to be. Regardless of the racial fears some partisans hold in their heart of hearts, the new conservatism does not systematically generate racist statements or policies, and its leaders take pains to converse in the polite language of diversity.6 Yet other commentators seek to explain the Right's revival by pointing to the ways it has "leveraged" the Internet, just as Barack Obama once did. Conservatives are using the web to recruit followers; they are blogging like mad; they're all atwitter with rageful tweets. In this view, the message is nothing and the medium is everything, and you could probably get King George III himself elected if you built an awesome-looking website and got all clickety-click interactive.

Old ways of thinking about conservatism have proved equally unsatisfactory in the new situation. For years, it was possible to understand the laissez-faire revival of recent decades by noting the various forms of mystification in which the debate was always cloaked-namely, the culture wars. From the seventies to the years of George W. Bush, the great economic issues weren't settled by open argument or election-year slogans; they were resolved by a consensus of political insiders in Washington while the public fought over abortion and the theory of evolution.

But the conservative flowering that has taken place since early 2009 is different. For the first time in decades, the Right wants to have the grand economic debate out in the open. The fog of the culture wars has temporarily receded. Should you sign up for the online discussion forum maintained by the Tea Party Patriots, one of the leading organizations of the revived Right, you will see a warning that "no discussions on social issues are allowed"; that partic.i.p.ants are to restrict themselves to the subjects of "limited government, fiscal responsibility, [and] free markets." The conservative movement's manifesto for 2010, the "Contract from America," mentioned not a single one of the preceding decades' culture-war issues. When the Washington Post conducted a poll of nearly every Tea Party group in the nation, it discovered that "social issues, such as same-s.e.x marriage and abortion rights, did not register as concerns."7 And although I attended a number of Tea Party rallies over the last few years, I never once saw an antiabortion appeal on a protestor's sign or heard one from the podium.*

This is not to say that the Right proceeds about its work while renouncing confusion or mystification. Just the opposite: in defending "capitalism," the leaders of the latest conservative uprising don't really bother with the actually existing capitalism of the last few years, even though capitalism's particulars have made for scary headlines on the front pages of every newspaper in the land. They generally do not discuss credit default swaps or the deregulatory triumphs that made them so destructive. They do not have much to say about the ma.s.sive oil spill in the Gulf of Mexico-the news story that shared the front pages with conservative primary victories all through the summer of 2010-nor about "foreclosuregate," the revelation a few months later that banks had cut all sorts of legal corners in order to hustle borrowers in default out of their houses as quickly as possible.

Instead, the battle is joined at the level of pure abstraction. The issue, the newest Right tells us, is freedom itself, not the doings of the subprime lenders or the ways the bond-rating agencies were compromised over the course of the last decade. Details like that may have crashed the economy, but to the renascent Right they are almost completely irrelevant. What matters is a given politician's disposition toward free markets and, by extension, toward the common people of the land, whose faithful vicar the market is.

Now, there is nothing really novel about the idea that free markets are the very essence of freedom. What is new is the glorification of this idea at the precise moment when free-market theory has proven itself to be a philosophy of ruination and fraud. The revival of the Right is as extraordinary as it would be if the public had demanded dozens of new nuclear power plants in the days after the Three Mile Island disaster; if we had reacted to Watergate by making Richard Nixon a national hero.

So disjunctive does this spectacle appear that onlookers naturally a.s.sume the newest Right's motivations must lie elsewhere, as we have noted. The movement's positions bear so little relation to lived reality that observers sometimes feel they need pay its actual statements no mind at all.

But this is a mistake. If we wish to understand this latest right-wing triumph, we must begin by taking seriously what the Right actually says at its rallies, and prints on its signs, and shouts from its podiums. We must pick our way through the tangle of conspiracy dreams and libertarian fancies that make up the right-wing renaissance. And by all means, we must read the conservative texts themselves-the words of the politicized TV newsmen, the orotund phrases of the radio talkers, the end-of-the-world rhetoric that one noticed at the Tea Parties.

This is a book that seeks to explain hard-times conservatism, to understand the enthusiasm for an anything-goes economic arrangement that persists in spite of all the failures and bank-breaking catastrophes that our previous efforts to achieve such an arrangement have inflicted upon us.

Free-market capitalism is not the sort of system for which people rally in the streets, even in prosperous times. That they would do so in the months after the freest part of the market deposited so many of their fellow citizens onto the sc.r.a.p heaps of unemployment and bankruptcy tells us much about the genuine disgust abroad in the land, about the raw need to raise one's voice.

It also tells us much about the way the resurgent Right has capitalized on the nation's anguish to create a protest movement that virtually promises to make the anguish worse. This is the story of a swindle that will have terrible consequences down the road. And though it sounds curious to say so, the newest Right has met its goals not by deception alone-although there has been a great deal of this-but by offering an idealism so powerful that it clouds its partisans' perceptions of reality.

Now, constructing an alternative reality would normally put a worldly political movement at a profound disadvantage. But this case is different. The reborn Right has succeeded because of its idealism, not in spite of it; because idealism in the grand sense is precisely what our fallen economic world calls for.

CHAPTER 1.

End Times.

For the people of the most prosperous nation in the world, recessions are often existential crises, times when everything we believe is called into question. In fat years we think of our economic life in almost magical terms-the visionary wisdom of the stock-picking crowds, the brand spirit that is supposed to inhabit our sneakers-but in hard times the fantasies lie in shards on the ground, and the awful reality is that much harder for the shimmering dreams that preceded it.

In 2008 and 2009, the middle-cla.s.s world came apart. Every time we checked, the value of our retirement fund had fallen by another third; friends lost their jobs; industries like construction and auto manufacturing came to a standstill; and we discovered, with a sickening feeling, that we owed far more on our mortgage than our house was worth. The landmark inst.i.tutions of middle-cla.s.s life were crumbling around us. General Motors and Chrysler declared bankruptcy; Merrill Lynch, broker to the common man, desperately sold itself one weekend in 2008; IndyMac, Wachovia, Washington Mutual, Bear Stearns, and Lehman Brothers disappeared. It looked like society itself was disintegrating, and for the first time in our comfortable suburban lives, we felt the atavistic touch of panic.

For our parents and grandparents, however, these events may have seemed a little more familiar. The country went down virtually the same road in the years 192933, with stock markets crashing, banks failing, factories closing, and foreclosures mounting. So similar were the two disasters that comparisons to the Great Depression became a media commonplace in 2008, the inevitable model to consider when looking to make sense of the current debacle.

The literary critic Edmund Wilson called his book of Depression essays The American Earthquake, and though I've read it several times over the course of my life it wasn't until 2009 that I really understood what he meant by that phrase. Had you been one of the many who put your savings in stocks in the twenties, you would have watched your investments lose half their value, then lose half of what remained, then half again. Had you bought your stocks on margin, you would have lost it all at the very beginning.

Had you been one of the responsible ones who kept your savings in the bank, you may well have lost it anyway. Financial inst.i.tutions were exposed to the disaster by definition, and when your local bank failed-as almost half of American banks did in the years after the 1929 crash1-it was a pretty sure bet that no nice man from the FDIC would show up to make it all better. You simply lost most of your savings. And when your town bank went down, your town went down, too.

In 1933, the fear among bank depositors grew so contagious that state governors tried to stop the runs on the banks by forcing them to close, or take a "bank holiday"-a move that brought economic activity to a stop in the United States. Manufacturing and construction were moribund by that time anyway, and the economy had already shrugged off about a third of the labor force. A huge part of the population now had no way of earning a living no matter how hard they tried; and, as the once-famous labor historian Irving Bernstein pointed out in a once-famous history of the period, "no one knows what proportion of the others were on part time." We do know that people stopped leaving jobs voluntarily, regardless of how badly their boss treated them-times were too desperate for gestures like that. We know that marriages declined, as did the birthrate; that the suicide rate rose, and that newspapers published sensational stories on starvation in America.2 Unemployment relief, back then, was an entirely local matter, and after the first year or so of the downturn it essentially no longer existed. There was "organized looting of food" in the big cities, Bernstein tells us, and in a number of places unemployed people set up economies based on barter rather than on dollars-even though the dollars of the day were fully backed by gold and no one feared inflation. Per capita income fell so far that by 1933 it was lower than it had been in 1900.3 What's more, there was no guarantee that things would ever return to "normal." Economists of the time were enchanted by the idea of "equilibrium"-of the coming day when the free fall would stop and supply and demand resume their happy orbits-but it slowly dawned on them that economies could find a kind of equilibrium with 33 percent unemployment just as naturally as they could with 3 percent unemployment.4 And so the catastrophe of 192933 did to the certainties of laissez-faire economics what science did to nineteenth-century religion and what the slaughter of World War I did to old-fashioned patriotism: it knocked out the props. "Everything nailed down is coming loose," people used to say back then: The Depression made business leaders into laughingstocks and transformed economic orthodoxy into so many fairy tales.5 It flattened a century of bankerly wisdom and shook to pieces the country's consensus knowledge, the sacred principles upon which everyone from postman to president had once agreed. "Like the forces of war," wrote Peter Drucker in his 1939 cla.s.sic, The End of Economic Man, "depression shows man as a senseless cog in a senselessly whirling machine which is beyond human understanding and has ceased to serve any purpose but its own."6 When we recall that Drucker was an eminent management theorist, his statement can be read as a fairly harsh indictment of cla.s.sical economic arrangements. But it was scarcely the harshest. That was supplied by the headlines of the day: Bankers who contrived to reward their friends and rescue themselves as the floor caved in. Wall Street heroes who went to prison. Men of substance whose rea.s.suring predictions were almost immediately contradicted by events.

Disintegration was the great literary theme of those days, and writers returned again and again to imagery of desolation and hopelessness: Express trains making their runs with just one or two pa.s.sengers while armies of tramps traveled in boxcars. Fruit rotting on the ground in the countryside while people starved in the cities. Settlements built of trash down at the city dump. The economist John Maynard Keynes famously compared the collapse to the Dark Ages. The editor of Nation's Business saw "fear, bordering on panic, loss of faith in everything, our fellowman, our inst.i.tutions, private and government."7 Even Calvin Coolidge, the figurehead of the business civilization, gave up. Once he had been so confident in the old system that he had declared, "The man who builds a factory builds a temple." Four days before he died in 1933, Coolidge pondered the panorama of waste surrounding him and told a friend, "In other periods of depression it has always been possible to see some things which were solid and upon which you could base hope, but as I look about, I now see nothing to give ground for hope-nothing of man."8 The Hard-Times Scenario.

The social patterns of hard times are supposed to be a simple thing, as impersonal and as mechanical as the forces that shutter our factories and bid down the price of our stocks. Markets disintegrate, layoffs mount, foreclosures begin, and before you know it, the people are in the streets, yelling for blood. We grow desperate, anxious, rebellious. The idols of our past become targets of derision. We demand that the government do something about it-punish the perps, rescue the victims. We look for insurance against further catastrophe, and stricter supervision of the economy, to make sure it doesn't happen again.

Or so it was in the thirties. And once the crisis was past, Americans came to believe that the course they had followed in the Depression was a universal pattern, a template for how people behave in hard times. Like the economists' "automatic stabilizers"-the government spending that kicks in when unemployment crosses a certain line-the public's reaction to severe recessions is supposed to be predictable, automatic. The economy stumbles, the people scream, and the politicians of both parties rush to rescue us from the disaster: one leads to the other by a process as natural and as reliable as gravity.

When the catastrophe comes, the thirties taught us, certain legislative deeds will follow swiftly. Unemployment insurance will be extended, and extended again. There will be ma.s.sive investment in public works. Commissions will be named to investigate the causes of the crisis. Agencies will be set up to keep people from losing their houses to foreclosure.

Those hurt by the downturn will start to take action themselves. Union organizing and a wave of strikes will sweep the country in response to the complete breakdown of capitalism's promise. The people will protest, of course, voicing their discontent in public places and maybe descending on Washington like the "Bonus Army" of unemployed World War I vets who took to the road in 1932.

In the larger culture, fundamental matters of subsistence will take precedence over n.o.ble principles. That was true in the thirties, anyway, as economic calamity induced Americans to abandon Prohibition, their great national experiment in federal uplift. They turned away from the preceding decade's strange fads in art and religion. Dabblers in Dada came home from Paris to write "reportage" about coal miners in Kentucky.

As the economy falls apart, the a.s.sumption goes, we will also rediscover a certain neighborliness, a sense of community and even collectivism that comes from shared privation. "The 1930s," writes the historian Warren Susman, "was the decade of partic.i.p.ation and belonging." The "rugged individualism" extolled by Herbert Hoover gave way to the generosity and social solidarity doc.u.mented by Studs Terkel in his oral history Hard Times. Writers and intellectuals grew anxious to be part of a larger group, to escape the economy's sense of futility with collective action. Being a "good neighbor" became one of the great themes of the Roosevelt presidency. According to Robert McElvaine, an eminent historian of the Depression, all of these developments expressed a larger shift in values, "a search for a life of community and sharing, as opposed to the acquisitive individualism of modern industrial capitalism."9 In politics, cla.s.s issues will become paramount. When Huey Long won his first race for the governorship of Louisiana in 1928,* notes the historian Alan Brinkley, the politics of the state were completely reconfigured. Suddenly, traditional cultural divides ceased to count. "It no longer seemed to matter whether the parish was Protestant or Catholic, northern or southern," Brinkley writes in a history of thirties protest movements. "What mattered was its wealth, or lack of it."10 This new mood will naturally make pariahs of the business cla.s.s. Let the unemployment rate hit 10 percent, let our pension funds lose their value, and suddenly we no longer thrill to hear about the fabulous lifestyles of the wealthy, the amazing earnings of the investment bankers, or the wonderful cars and homes and private planes that fill the hearts of tyc.o.o.ns with joy. In the thirties, the public even resisted recovery measures when they seemed to benefit the politicians' business-cla.s.s cronies more than the common people.

Above all, there will be a grand shifting of the philosophical plates. The economic collapse of the thirties cleared the way for economic ideas that had been marginalized before. "The decadent international but individualistic capitalism, in the hands of which we found ourselves after the war, is not a success," wrote the British economist Keynes, a leader of the new school, in the awful year 1933. "It is not intelligent, it is not beautiful, it is not just, it is not virtuous-and it doesn't deliver the goods. In short, we dislike it, and we are beginning to despise it."11 Americans, for their part, were willing to try almost anything. Economists entertained new schools of thought. The Keynesian doctrine of countercyclical deficit spending began to overtake laissez-faire orthodoxy, and an amazing a.s.sortment of less memorable ideas enjoyed their brief moments of glory.

If the hard-times pattern is fixed, so are the moves it supposedly forbids. Here the lessons come not from the successful Roosevelt presidency but from the disastrous administration of his predecessor, Herbert Hoover. Never again, it has always been thought, would a hard-times president pine for balanced budgets in the Hoover manner or chase the illusion of stability represented by the gold standard. Nor would there be any audience for views like those of Treasury Secretary Andrew Mellon, who famously advised Hoover to "liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate." Such actions, according to Mellon, "will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted and enterprising people will pick up the wrecks from less competent people."12 Mellon's advice reflected the orthodoxy of the day: let the downturn take its course, let the failures fail, let the weak be purged, and have confidence that the strong will emerge stronger than ever.

Mellon's idea was disastrous where it was tried13 and politically poisonous where it was spoken. It rightly followed Mellon into political oblivion. From the enlightened heights of 1954, it was possible for the economist John Kenneth Galbraith, in a pa.s.sage about Mellon's famous advice, to declare that "a developing depression would not now be met with a fixed determination to make it worse."*

The Millionaire's Union.

The recurrence of the hard-times scenario isn't really a matter of political opinion; both liberals and conservatives expect economic downturns to bring specific, predictable consequences.

For those on the left, of course, hard times have always served as the great moment of vindication, the period when it becomes impossible for anyone to deny the old order's viciousness. When the system ruins investors and tells workers to hit the bricks, those investors and workers begin to question said system. That's why economic crisis automatically gives rise to a "legitimacy crisis" in which the established order of things is shaken to the foundations. This effect is thought to be almost mechanical in its certainty. After all, as the old saying goes, when corn is two dollars a bushel, the farmer is a conservative; when it's one dollar a bushel, the farmer is a radical.

Radicalism of the dollar-a-bushel kind was everywhere in the "Red Decade," and leftists have always a.s.sumed that a second collapse of the business civilization would bring a second dose of the same. "If another Depression came, we'd have a revolution," the crusading Texas congressman Wright Patman a.s.sured Studs Terkel in 1970. "People wouldn't take it any more. They have more knowledge."*

For conservatives, the scenario is equally inevitable, but it comes laden with dread rather than vindiction. It was the economic collapse of the early thirties, after all, that ended capitalism's golden age, that destroyed the credibility of laissez-faire orthodoxy, and that transformed business leaders from heroes into goats. The decade that followed was, for them, an unequaled disaster. It saddled bankers and merchants with taxes of every description, it launched an invasive regulatory regime, and, of course, it ushered in the p.r.i.c.kly presence of organized labor.

Conservative panic ran riot in those days. Establishment types famously feared revolution in the early thirties; they saw communist influence behind every squeak of protest. "More communistic than the communists" was the verdict p.r.o.nounced in 1934 by the newspaper baron William Randolph Hearst on the Roosevelt administration, and in that same year a group of superwealthy industrialists came together to form the American Liberty League, which denounced the deeds of FDR as so many a.s.saults on the Const.i.tution. "The New Deal represents the attempt in America to set up a totalitarian government," bl.u.s.tered the league's president in a typical 1936 radio speech, "one which recognizes no sphere of individual or business life as immune from governmental authority and which submerges the welfare of the individual to that of the government."14 But the Right just couldn't catch a break. Not even totalitarian-baiting could turn the tide of the awful thirties; the public was far more interested in mocking the "Millionaire's Union," as the league was lampooned, than in rallying around its spectacular fears of the Const.i.tution laid waste.15 So Franklin Roosevelt built his great coalition of blue-collar workers and other traditional outsiders, winning electoral triumphs by popular-vote majorities of a kind rarely seen since; in the House of Representatives his Democrats held, as of 1937, more than three-quarters of the seats. So lasting was the thirties realignment that Democrats retained that majority, with two brief intermissions, until the Gingrich Revolution of 1994.

Spirits of '76.

Here is an example of the hard-times scenario, drawn from a chapter of the history of the Midwest.

The state of Iowa boomed along with farm prices in the years just after World War I; the nation convinced itself that farms were the thing to own; everything was mortgaged and mortgaged again; it was a scene of unrivaled prosperity. Ten years later, in the pit of the Depression, the price of farm products had fallen to a sliver of former values. Now no amount of hard work sufficed to keep up the farmer's mortgage payments, and the farm foreclosures began. By 1933, a third of the cases in Iowa courts were foreclosures.16 As conditions soured and no relief came from the Hoover administration, Iowa farmers began to organize themselves into a "Farmers' Holiday a.s.sociation," the name being a dark joke on the euphemistic "bank holidays." The idea was for farmers to withhold their products from the market until prices rose and the politicians did something to help them bear their crushing burden of debt.

But this was the thirties, people were desperate, and matters quickly got out of hand. Farmers blockaded the roads around cities in Iowa and Nebraska, forcibly dumping out truckloads of produce that got close to their picket lines. They faced down police and government officials. They disrupted so many foreclosure proceedings that it "became virtually impossible," according to one observer, "to prosecute a foreclosure in counties where the a.s.sociation was strong." The farmers railed against bankers and produced a manifesto that echoed one of the cla.s.sic Depression themes: the common people coming together to defend themselves against a predatory world. "We pledge ourselves to protect one another in the actual possession of our necessary homes, livestock and machinery as against all claimants," it read-and by "claimants," one journalist wrote, the farmers meant "the holders of mortgages."17 That same journalist marveled at the farmers' old-fashioned tactics of "direct action," which he saw as a Depression-induced throwback "almost to the days of 1776." It was a comparison much in the air in those rebellious years. One Iowa picketer even justified the trashing of his fellow farmers' products as follows: "They say blockading the highway's illegal. I says, 'Seems to me there was a Tea-party in Boston that was illegal too. What about destroying property in Boston Harbor when our country was started?'"18 The 1932 farm strike didn't do much to raise farm prices. Instead, it was just one dreadful note in a grand chorus of hopelessness that eventually brought the various ag bills, social insurance plans, and mortgage remediation schemes of the New Deal.

Still, the plight of Iowa in the thirties is worth remembering because it provides such a stark contrast with our own, hard-bitten era. We have just come through the worst recession since the days of the Farmers' Holiday a.s.sociation. And just as in the awful days of 1932, average people have risen up in outrage, fuming against the moneymen who drove the nation into the ditch and the politicians who stuck by their cronies while the rest of us lost our jobs and our savings. Thirties-style populism has made a triumphant return, claiming to juxtapose decent Americans against an uncaring, predatory world.

But should you happen to hear an homage to the spirit of the Boston Tea Party nowadays, the demands that follow will be the opposite of those of the striking farmers of 1932. What makes the rebel's blood boil today is not the plight of the debtor but the possibility that such "losers" might escape their predicament-that government might step in and do the things those Iowa farmers wanted it to do eighty years ago.

That seven lean years must follow seven fat years seems like a fair deal nowadays. What burns these modern-day populists is that anyone has the arrogance to think that human affairs might be arranged any other way; that government might allow our neighbor to evade his part of the common disaster; that some mortgage remediation scheme or farm bill might let him out of the hard-times punishment that he clearly deserves. The ones moved to protest in 2009 were all "liquidationists," as old Herbert Hoover used to call them. What they needed the world to understand was that, to quote the words I saw printed on a sign at one of the first Tea Party protests, "Your Mortgage Is Not My Problem."

CHAPTER 2.

1929: The Sequel.

Seventy-nine years after the Great Crash, we got our own economic calamity, a crushing bust to put the exclamation point on the end of an anemic boom. As a lesson in the built-in treachery of the system, the collapse was unexcelled in living memory. As an indictment of official America's consensus economic doctrine, it surpa.s.sed any plaint about NAFTA, any righteous editorializing about the payday loan industry, any fretting about the concentration of wealth into ever-fewer hands. If you had brought the world's teenaged anarchists together in some great international congress and asked them to design an ideal crisis, they could not have discredited market-based civilization more completely than did the crash of 2008.

Committee to Give the Huge Middle Finger.

It happened, to begin with, on the watch of president George W. Bush, whose faith in the prevailing economic creed was as close to perfect as any chief executive's is likely to come. The creed itself, though, transcended the partisan divide; its merry a.s.sumptions chirped forth from the opinion pages of the Washington Post and the research papers of the Cato Inst.i.tute. Its holy trinity of deregulation, privatization, and free trade were the accepted policy mandates of that age, and only the crustiest sort of Luddite doubted their benevolence when applied to financial services.

Over the years, visionary, tech-friendly Democrats had joined with stern, patriarchal Republicans to circ.u.mvent the country's banking rules and to mute its supervisory agencies. The winds of history were at their back, as were the gales of dollars blowing in from the private sector, and in the n.o.blest spirit of bipartisanship they repealed what remained of the nation's basic banking laws in 1999. When market-displeasing laws remained on the books, the practice of "desupervision" ensured that they were not enforced. Enlightened governance in our advanced age meant counting on industries to comply voluntarily. Self-interest is what would make bankers play fairly and oil companies drill safely.

Do you remember the smugness, reader? The sheer complacency with which the free-market catechism would be p.r.o.nounced? Then surely you will permit me to include the following memorable pa.s.sage from a 1999 issue of Time magazine whose cover hailed Alan Greenspan, Robert Rubin, and Larry Summers as the "Committee to Save the World." The magazine observed, dispa.s.sionately, that "Rubin, Greenspan, and Summers have outgrown ideology." What it meant by this was that "their faith is in the markets and in their own ability to a.n.a.lyze them." This faith beyond ideology recalls nothing so much as the objectivist philosophy of the novelist and social critic Ayn Rand.... During long nights at Rand's apartment and through her articles and letters, Greenspan found in objectivism a sense that markets are an expression of the deepest truths about human nature and that, as a result, they will ultimately be correct.

His reverence for markets forged in the searing fire of Objectivism, Greenspan was prepared to lead his two colleagues and the nation into a new, enlightened age. All three of them "agree that trying to defy global market forces is in the end futile. That imposes a limit on how much they will permit ideology to intrude on their actions."1 To insist that the free-market creed is beyond ideology might sound like the baldest sort of propaganda today, but all through the eighties, the nineties, and the zeroes our leaders whistled that happy tune, congratulating themselves for figuring it all out. Those were the golden years of libertarianism, a time when our choice and master spirits agreed on the uselessness of big government and took the benevolent rationality of markets for granted. And while they did so, the American financial establishment proceeded to cheat the world to the very edge of the abyss. Indeed, what brought the nation down were the very aspects of business practice that our choice and master spirits admired the most-the financial innovation and risk-taking that were routinely described as America's unique offerings to the world.

We didn't manufacture much anymore, but we could sure dream up awesome ways to securitize debt and slice up the risk in every imaginable situation. One testament to the zesty innovativeness of markets was the industry that had sprung up to supply credit to "subprime" borrowers, selling off the loans thus made to the investment banking industry on Wall Street. Then there were the geniuses at the next few steps of the process, who bundled those subprime mortgages into bonds and those bonds into collateralized debt obligations-and then sold credit default swaps to insure against the possibility of their failure.2 The gospel of deregulation, meanwhile, had become such an irresistible ideological juggernaut that no amount of real-world failure could call it into question. Under the guidance of this doctrine, our leaders removed certain derivatives from regulatory oversight; they watered down requirements that banks balance their risk with safe a.s.sets; they exempted credit default swaps from regulation as insurance products; they dialed back the Federal Reserve's regulatory powers; and they struck down a rule that required hedge-fund advisers to register with the Securities and Exchange Commission. All these examples come from the first few chapters of a single investigative report;3 further ill.u.s.trations of the rollback of the regulatory state could be piled up by the hundreds.

Meanwhile, anyone who knew anything about markets genuflected before the great G.o.d bonus, the pay-for-performance doctrine that was being triumphantly extended to every aspect of enterprise. Lavish incentives, the theory went, would coax superhuman labors from management and bring fantastic wealth to shareholders. In reality, as we now know, what bonuses inspired were superhuman efforts to game the system, to collect those rewards regardless of what the gaming did to stockholders, customers, or even the long-term health of the company.

Let us recall what it all looked like at its moment of supreme triumph. In the Year of Our Market 2006, it was reported that Goldman Sachs distributed some $16.5 billion in bonuses to its employees, enriching them in a way that is probably capable of overpowering all other forms of human motivation-faith, love, duty, ethics, patriotism, the law. And in such circ.u.mstances it was understandable that the bonus would become the object of a sort of cult. The high priest of the sect-or, rather, the leader of the ravening pack-was a magazine called Trader Monthly, which existed not to offer economic conjecture or stock tips, but merely to drool over the bonus-driven lifestyle. "See It, Make It, Spend It" was the publication's slogan, and it stood ready to help the rising Wall Street star blow his share of the loot conspicuously, flamboyantly. Oh, there were cars: Lamborghinis, Maybachs, Ferraris, Maseratis, described in the magazine's characteristic tone of flippant indulgence. There were airplanes, reviewed and rated in a column specifically dedicated to that purpose. There were Scotches, including, in the "Bonus Guide" for 2008, a $20,000 bottle of Johnnie Walker.

One definitely did not get the sense that traders aspired to live this way because they were jolly bon vivants. Quite the opposite. At one point in its intermittent pursuit of the best possible record player, for example, Trader Monthly described what it claimed to be a $300,000 turntable as "a huge middle finger to everyone who enters your home."

If you didn't understand why someone would want to greet his guests in such a way, you didn't understand what made the Bush era go. But Trader Monthly did, and it suffused its protagonist in golden light so that all might behold his glory. A trader was not just an uberconsumer but a bullying, self-maximizing, wealth-extracting he-man: a lout in full. The magazine's panting worship of the truculent personality culminated in a bizarre spectacle it arranged in November of 2007: trader boxing. Before an audience chewing steak and guzzling luxury vodka, the furious fists of junk bond specialists would connect with the jaws of private equity managers, and the world would enjoy a graphic representation of the primal drama of capitalism.

I bring up this forgotten catalog of cra.s.sness not merely because its pages are such an amusing trove of bull-market ephemera but because the att.i.tude it celebrated was instrumental in bringing disaster down on the nation. Those turntables and cars and jets were not just evidence of wastefulness at the top; they were pretty much all that Americans got in exchange for the decades of regulatory rollback. Professionals did OK during the Bush years; hourly wage earners gradually lost ground during the boom; but traders got to shop for private jets. Economists can talk in their abstract way about incentives and self-correcting markets, but this is what the free-market faith looks like in concrete reality. These tacky souvenirs were the reason for the whole mortgage catastrophe, the rewards that caused so many to cut corners and break rules and hire lobbyists and palm it all off on the next guy downstream. Not so you could prosper; so they could.

If ever a financial order deserved a thirties-style repudiation, this one did. Its G.o.ds were false. Its taste was bad. Its heroes were oafs and brutes and thieves and bullies. And all of them failed, even on their own stunted terms: the "MBA president" and his "market-based" government; the "K Street Project" and the "superlobbyists" who epitomized it; the federal agencies that had learned to think of private industry as their "customers"; the sleepy regulators, ignoring that red telephone ringing in the next room; and our fleet of hedge-fund billionaires, chortling on their yachts, as they all steered toward the iceberg. All of it should by rights have met its end.

Crime Pays.

Instead, it got a bailout. Having let the louts in the nation's financial industry do as they chose for decades, Washington suddenly swung into action when it became clear that those selfsame louts had sold one another trillions of dollars of b.o.o.by-trapped investments. In March of 2008, the Federal Reserve facilitated the takeover of Bear Stearns by JP Morgan. In September, after Lehman Brothers was allowed to fail and financial markets began to panic, the Fed and the Treasury Department began bailing with both hands. They put together an emergency package for AIG, an unregulated hedge fund grafted onto an insurance company; they took over Fannie Mae and Freddie Mac, the mortgage companies; they rode to the rescue of the nation's money-market funds and organized the distress-takeover of the huge Wachovia bank. And then, having warmed themselves up with these exercises, they went to Congress and asked for that notorious intervention known as the Troubled a.s.set Relief Program (TARP): $700 billion as a generalized rescue fund for the nation's banks, to be administered however the former Goldman Sachs chairman, Treasury Secretary Hank Paulson, saw fit.

The larger economy spun into the worst slump since the Depression. Over the next year, millions would lose their houses, millions more would lose their jobs, and countless small businesses would be wiped out. But the banks and brokerages and jerry-rigged venture capital concerns that had propelled the tainted boom-that had done everything wrong-these businesses could not be permitted to fail. They had to be recapitalized, propped up, dusted off, and sent back out into the world to swagger and bully and fly that huge middle finger all over again.

Drastic action was undoubtedly necessary. But the financial rescue could have taken any of a dozen different forms. It could have put the "zombie banks" into receivership and commenced an orderly bankruptcy process, with no one allowed to get out of it by gimmicking their accounting. It could have broken up the banking industry and brought back strict regulation, along with a policy of zero tolerance for financial ent.i.ties that are "too big to fail," so that the temptation to rescue such inst.i.tutions would disappear. Instead, our leaders allowed the biggest banks to get even bigger. They offered the banks an open-ended guarantee against failing without really restricting their activities-a guarantee that might well encourage them to bet on the riskiest propositions available, secure in the knowledge that the taxpayer would make good their losses.

The bailouts were one of those moments that crushes the faith of a nation. Wall Street had gambled with the world's prosperity; Wall Street had brought about a financial catastrophe; and yet Wall Street was now to get the kind of government help that you and I would never receive. When you decided, reader, to spend your life making things/designing things/writing things instead of trading risky financial instruments, perhaps you thought that you were doing something productive, something our society valued. But here now was the truth, as revealed by Hank Paulson and Co.: In the land of the red, white, and blue, only one calling mattered. To go into any line of work other than finance was to confess yourself a fool. To play by the rules was a chump's game.*

To believe in the fairness of the system was just as naive. The awful but unmistakable message of the bailouts was that the lords of Wall Street owned the government. Once they had got themselves in trouble, they simply whistled up the resources of the public treasury: our tax money. Federal agencies, we now learned, were honeycombed with alumni and future employees of the banks; Washington's officials all bowed before Wall Street's self-serving economic ideology; both parties were in on it. The feeling that arose from this awful enlightenment was one of almost physical nausea. It was like finding out that the CIA had murdered President Kennedy, or that President Eisenhower really was a communist agent, like the Birchers used to say.